Alphabet (GOOG) stock rose by just over 1% on July 24, despite the company beating Q2 estimates on nearly all metrics. In this article, we’ll look at the key takeaways from Alphabet’s Q2 earnings and examine whether it is a good buy.

Alphabet’s Q2 revenues rose 14% year-over-year to $96.4 billion, which easily surpassed the $94 billion that analysts were expecting. The company’s per-share earnings came in at $2.31, which was also ahead of the $2.15 that analysts were modeling.

While it’s customary for company management to say that they are “proud” of their performance, Alphabet CEO Sundar Pichai began his commentary by classifying Q2 a “standout quarter for us with robust growth across the company.” He added, “As you saw at IO, we are leading at the frontier of AI and shipping at an incredible pace. AI is positively impacting every part of the business, driving strong momentum.”

Here are some of the other key takeaways from the report.

• Google Search Reported Double-Digit Increase in Revenues: With all the talk of Google losing its dominance in search, the company’s Search revenues rose 11.7% in Q2, and if anything, the growth rate accelerated from the previous quarter.

• YouTube’s Performance Improved: During the earnings call, Alphabet said that it now earns as much revenue per watch hour in the U.S. on YouTube shorts as traditional in-stream. In some regions, the balance is actually in favor of shorts over the long-form videos. During the quarter, YouTube ad revenues increased 13% YoY to $9.8 billion, which comfortably beat the consensus estimate of $9.56 billion. As I have noted previously, YouTube remains an unappreciated asset in Alphabet’s arsenal even though it is the market leader in U.S. streaming for the last several years, per Nielsen data.

• Gemini User Count Swells: Alphabet said that Gemini’s monthly active user is now more than 450 million, and it saw a 50% increase in daily requests in Q2, as compared to Q1.

• Cloud Growth Gets a Boost from AI: Google’s cloud revenues rose 32% YoY to $13.62 billion, well ahead of the $13.11 billion that analysts were expecting. AI is driving the growth of that business. Microsoft-backed (MSFT) OpenAI has also partnered with Google’s cloud infrastructure, a partnership CEO Sundar Pichai said the company is “very excited” about.

• AI Monetization: As expected, questions related to the monetization of AI investments did pop up during the Q2 earnings call. Responding to the question, Pichai pointed to the strong operating margins despite the rise in AI capex, while reassuring, “We’ll be able to have a healthy ROI on our investments.”

Alphabet’s post-earnings price action might look at odds with its otherwise stellar earnings. However, the disconnect can be attributed to four main reasons. Firstly, the stock rallied heading into the Q2 confessional and is up 13.4% over the last month, which is the second highest among its “Magnificent 7” peers, trailing only Nvidia (NVDA).

Second, the increase in 2025 capex guidance by a whopping $10 billion to $85 billion did not sit well with the markets. Third, some market participants are still worried about the “existential threat” to Google as the likes of OpenAI, Anthropic, and Perplexity challenge the status quo in search. Finally, there is the regulatory overhang as the U.S. Justice Department plans to break up Alphabet and force the company to divest its Chrome browser and Android operating system. It also wants the company to its end exclusive agreements with phone makers like Apple (AAPL) and Samsung.

Sell-side analysts reacted positively to GOOG’s Q2 earnings, and Oppenheimer, Pivotal Research, JPMorgan, and Raymond James were among the brokerages that raised the stock’s target price following the report.  Alphabet’s Street-high target price of $250 implies potential upside of 29.4% over the next year.

I believe GOOG stock has room to run higher given its tepid valuations. The stock trades at a forward price-earnings (P/E) multiple of just 20x, which is not only the lowest among its Big Tech peers, but also makes GOOG the only Magnificent 7 constituent that trades at a discount to the S&P 500 Index ($SPX).

The depressed valuations are primarily due to the regulatory uncertainty, as well as concerns that the company might lose market share to AI chatbots like ChatGPT. However, Alphabet’s Q2 earnings show that the company is yet to feel any meaningful impact from a flurry of competing products, and while these are still early days, so far Alphabet has handled the competition well.

Alphabet also has services like Waymo, which will add long-term value, even as that business, which is part of its “Other Bets” segment, is currently a drag on its profits, reporting an operating loss of $1.2 billion in Q2.

Overall, despite the run-up over the last month, I find GOOG’s risk-reward still attractive and believe that concerns over it losing out to AI rivals are a bit overblown.

On the date of publication, Mohit Oberoi had a position in: GOOG, TSLA, NVDA, MSFT, AAPL. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com